Nigeria’s inflation may be getting out of control – FDC

The inflation rate in Nigeria may be getting out of control, posing a threat to output growth, the Financial Derivatives Company Limited has said.

“We are estimating a sharper increase in headline inflation to 17.27 percent for February 2021 up from 16.47 percent in January. If this happens, it will be the 18th consecutive monthly increase in Nigeria’s inflation rate. It will also be the highest level in 46-months,” it said in its latest economic bulletin.

Analysts at the Lagos-based FDC, led by Bismarck Rewane, said inflation was moving further away from the upper band of the Central Bank of Nigeria’s six to seven percent target.

“It is likely to impede output growth. Real GDP growth increased marginally by 0.11 percent in Q4’20 after two consecutive quarters of negative growth,” they said.

They noted that in the last two months, there had been a divergence between the direction of month-on-month and annual inflation due to the base year effects and supply shocks.

The analysts said, “We have also seen the impact of high-powered money and the massive borrowing of the FGN via the CBN. The impact of the crowding out of private investors from the public debt market by the CBN printing money is now playing out in higher price inflation.

“We expect the food and core sub-indices to move in tandem with the headline inflation. Food price pressures will remain the primary driver of inflation, rising to 21.98 percent in February.”

They said the impact of the recent blockade of food supply from the Northern states to the South-west was unlikely to reflect in the February inflation numbers.

“However, the impact will be felt in the month of March. Core inflation (inflation less seasonalities) is also projected to cross the 12 percent threshold to 12.02 percent in February due to exchange rate pressures and higher logistics costs. The impact of higher transport fares will be more potent in March,” the analysts added.